Jul 10, 2017

To What Extent Does Crime Effect Rent Prices?

A lot. But then to what extent does the presence of attractive jobs in growing industries create the gentrification that pulls wealther, more educated and tech savvy people in or pushes others out? JL

Price Economics reports:

Higher crime cities have lower rent prices. New York
has the highest prices and least crime, while cities like Atlanta and
Houston are much cheaper, but have more crime. While all metrics are negatively correlated with rent prices, it is most closely linked with rates of burglary and robbery. Crime can vary greatly by neighborhoods: crime rates are strongly connected with rent prices in each (New York) borough.

While historically, crime rates across the country have been dropping since the 1990’s, in the past two years, violent crime has been on the rise. These recent spikes, while far from the crisis of America’s past crime wave, highlight how sensitive communities are to changes in neighborhood safety.

Neighborhood safety is closely connected with the number of businesses, access to public spaces, and housing and rental prices. While it’s generally understood that rent and crime are connected, but how much do crime rates impact rent prices?

We analyzed rental listings data from Priceonomics customer RentHop to investigate this question. US. By combining that data with crime statistics from law enforcement sources, we can help uncover the relationship between crime and rent.

Our analysis confirmed the initial assumption that crime was negatively correlated with rent prices (meaning the higher the crime the lower the prices and vise versa). It also showed us that the full answer is more nuanced. Certain crimes matter more than others, with property crimes the most negatively correlated when looking at major US cities. However, New York City, where we’ve done some more detailed analysis, violent crime was most negatively correlated with rent, while property crime (e.g. burglary or motor vehicle theft) was less so.

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To begin, we looked at rental and crime data for several large US cities that are major markets for RentHop. Below we’ve shown the total number of crimes in each city for the first half of 2016 (from the FBI Uniform Crime Reporting program). Crime is divided between violent crime which includes assault, robbery, rape, and murder, and property crime which includes burglary, motor vehicle theft, and larceny theft. It’s important to note that while colloquially they are used interchangeably, theft, robbery, and burglary have distinct legal definitions. Overall crime is the sum of all crimes and includes violent crime, property crime, as well as other several other categories.

Among these markets, New York City has the greatest number of total crimes, followed by Los Angeles and Houston. Looking at the sub categories, Chicago is second for violent crime, while Houston is second for property crime.

This comparison does not consider the number of people in each city though. Population is highly correlated with crime and we would expect larger cities to naturally to have more crime. Showing each crime category per 100,000 residents, the story changes.

While New York has the greatest number of crimes in this sample of cities, it actually has the lowest crime rate. Relative to its large population, crime is actually low. A much smaller city, Atlanta, is the number one city for crime per capita. Houston and Miami are also in our top cities.

Now that we have a better sense for the degree of crime in these cities, we can explore how rent prices are connected. Creating a scatter plot of median rental price and total crime per 100K residents will visualize the relationship.

From the graph, we can see a clear downward trend; Higher crime cities have lower rent prices. New York has the highest prices and least crime, while cities like Atlanta and Houston are much cheaper, but have more crime. While there are no extreme outliers, Dallas-Fort Worth and Philadelphia seem to have less crime than cities in similar price ranges.

We have just illustrated that when the total crime rate is lower, rent prices are likely to be higher. Do certain crimes matter more than others for rent prices? To answer that, we have run a correlation analysis on each crime statistic.

From this analysis we can see that while all metrics are negatively correlated with rent prices, it is most closely linked with rates of burglary and robbery. Prices are less correlated with more violent crimes according to this data. That means in cities with high burglary rates, prices will most likely be lower than somewhere with a similar rate of a different crime.

***

There’s another dimension to this issue, we haven’t explored yet. We’ve been summarizing rental prices and crime at a citywide level, but both can vary greatly by neighborhoods. That is why we took a more detailed look at New York City crime at the borough level. Data from the NYPD, listing all crimes reported in 2016, allowed us to make some comparisons and analyze crime trends.

To start, we looked at number of crimes in each of New York’s five boroughs, Bronx, Brooklyn, Manhattan, Queens and Staten Island.

Brooklyn has the greatest number of crimes at over 130,000 incidents reported in 2016, while Staten Island has the least at just over 20,000 incidents. Manhattan also has the greatest number of property crimes, while Brooklyn has the greatest number of violent crimes.

Again, this does not take into account the number of people in each area. It makes sense that Staten Island, with one-fifth the population of Brooklyn would have less crime. To correct for this imbalance, we’ve calculated crime rates per 100,000 people for each borough.

When accounting for population, the Bronx has the highest overall and violent crime rate. Manhattan has the highest property crime rate. Queens and Staten Island are the safest boroughs with fewer than 1,000 violent crimes per 100,000 residents.

As you may have guessed, these crime rates are strongly connected with rent prices in each borough. We have plotted overall crime, violent crime, and property crime against median rent prices to understand the connection with each.

Violent crime rate though appears to have a moderate connection with rental prices. The Bronx has the highest violent crime and lowest rental prices. In contrast, there doesn't appear to be a clear relationship for overall crime or property crime. Specifically for property crime, Manhattan’s high prices and high rate make it an outlier and weaken the overall trend.

Within each of these overall categories, specific crime metrics can have very different relationships. Side by side we’ve shown the relationship between prices and the murder rate (part of violent crime), burglary rate (part of property crime), and drug crime rate (a separate category) to demonstrate that.

Murder rate has a clear negative correlation, with the Bronx once again leading the boroughs in crimes per 100,000 residents. Burglary rate and drug crime rate do not have as clear of a relationship. The burglary rate seems relatively consistent at about 150 per 100,000 residents regardless of prices. There is large variation in drug crime rates, but both Manhattan and the Bronx (the highest and lowest median prices respectively) have high rates.

Across all these metrics there are a few lessons though. The Bronx is New York’s most highest crime borough, while Queens is the lowest crime. Queens is also one of the most affordable boroughs. Before heading out to Queens for your next apartment though, you’ll need to consider that many of its neighborhoods are more residential, quieter, and more isolated from nightlife. This greatly contributes to its safety, but it could take away the appeal for some.

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As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance.Learn more...